Ever keep too much cash on the sideline for that “what if” scenario that never materialized?

We recently helped a client put $500k of idle cash to work without sacrificing flexibility.

I hear these reasons all the time for keeping large cash reserves:

“We may move in the next few years and I need the cash for a downpayment”

“I’m waiting for the market to pullback or crash”

“I’m getting burnt out at my job and want flexibility if I need to transition”

“I want to invest in real estate”

All valid reasons, but many times these scenarios never materialize and the cash sits for years. 

For this particular client, they were holding $500k for a possible home purchase that wasn’t even on the calendar.

We set up a line of credit (LOC) secured against their taxable (non-retirement) assets. 

1. Act as a bridge loan between buying a new home and selling the old one

2. Extra source of liquidity for other opportunities or needs

3. No cost to setup and interest is incurred only if you draw on the line

4. Very favorable rates in today’s environment (around ~4% plus or minus)

5. Keeps you invested and avoids having to incur capital gains by selling low basis positions

They still maintain an adequate emergency fund, but with the LOC in place they could confidently invest the $500k of excess cash instead of letting it collect dust in the bank. 

This is a similar concept as a home equity line of credit (HELOC), but instead of pledging home equity you pledge investable assets. A HELOC can make a lot of sense to pre-emptively put in place too, depends on the situation, terms and the amount of equity in your home. They typically are more cumbersome to set up, will cost more and have a longer lead time.

Preserve Private Wealth is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specic securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.